The Myth of Dr. Copper Unmasked by Reagan's Investment Advice

For weeks now, headlines have warned that a decline in copper prices means the stock market is going to fall. The truth is declines in the price of copper are rarely followed by selloffs in the stock market.

Copper futures began trading in 1988, so there is a limited history to work with. Copper peaked in the fall of 1988 and stocks suffered a brief bear market in 1990. The two-year lead time between copper's peak and the bear market in stocks was not useful for market timing.

After 1990, stocks moved mostly higher until 2000. In the meantime, copper had peaked in 1995, and once again, following copper would have led to missing out on big gains in the stock market. A five-year difference in peaks is truly worthless information to stock market investors.

In the most recent bear market, stocks peaked in late 2007. Copper peaked in April 2008, after stocks had reached their bull-market highs.

History shows that copper prices have not served as an indicator of the stock market at major turning points.

This time, copper has been in a bear market since July 2011. After falling for nearly three years, stock market bears are touting copper as another reason stocks are doomed. This reason, like most of the others, is not based on an accurate reading of history.

When listening to analysts explaining why stocks are headed for a massive decline, it is best to follow the investment advice of Ronald Reagan, who understood the importance of independent analysis. Like Reagan, you should "trust, but verify" everything.

For weeks now, headlines have warned that a decline in copper prices means the stock market is going to fall. The truth is declines in the price of copper are rarely followed by selloffs in the stock market.